For long, geopolitics seemed to have started playing an important role in deciding the destiny of global financial markets. 2015 has seen contrasting developments, where nearly every market affected the other, irrespective of how much contribution one made to the other’s GDP. The reason could be that globally financial markets remain highly interconnected and if not through investments then through trade, the influence remained inevitable. This article highlights four important economies that could make a difference to global financial markets.
Greece has been struggling hard to meet the requirements needed to be a member in the Eurozone. Moreover, following the 2008 financial crisis in the US, Greece’s economy got smaller by 25% since 2009. Germany, France, Italy and Spain are the most important economies accounting for most of the Union’s GDP.
June 30th 2015 could be an important turning point for Greece: an exit or a repayment of the debt as it reaches its debt repayment deadline. A crisis in Greece will affect markets all across the globe. In fact, they are already reflected in the stock exchanges across the world. The country is heading for a default and market reactions are the first sign that nothing is going good with Greece. Clearly, market perceptions are that Greece will be unable to meet 1.6 billion euro of loan repayment to the International Monetary Fund. The widespread panic happened last week due to the failing talks between Greece and its creditors.
This probably is a situation which will be a loss in either case: if Greece exits, it could be a bigger issue for Eurozone and Greece will have to fight its own battles with no common currency nation by its side.
The whole purpose of BRICS New Development Bank is to be self sufficient and rely less on western economies. The world’s reserves has shrunk from 90% (2004) of dollar denominated securities to 60% in 2014. But, the growing tension individually in the member countries could easily defeat the purpose for which it was originally formed. Some debate that this small initiative (formation of BRICS) could be a big challenge for the advanced economies.
The Eurozone comprises of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Established in 1999, these countries have adopted a common currency called the ‘Euro’. ‘Euro’ itself was introduced as a single currency no later than 2002. By sharing a common currency, the countries follow common economic and fiscal policies. Monetary policy decisions are taken by the independent European Central Bank , also known as the ECB. Entry to join the eurozone is controlled by the so-called Eurogroup.
Greece’s bailout extension expires in May this year and its inclination towards the members of BRICS seems inevitable. For long, Greece’s economy has been bringing troubling news to the Eurozone. The EU members have time and again tried their best to keep Greece in the common currency zone but bailouts and downgrading has got the worse out of Greece. However, the debt crisis in Greece seems to only deepen and has taken a different turn with some new developments in the Greece’s strategy – mostly captured in the statements of Greek Defense minister, Panos Kammenos.